THE EFFECT OF NON-INTEREST INCOME ON BANKS’ PROFITABILITY IN NIGERIA

Abstract

The study examined the effect of non-interest income on deposit money banks’ profitability in Nigeria between 2006 and 2015. It also assessed the relationship between non-interest income and interest income as well as the growth rate of non-interest income in the banks. Five out of the 21 deposit money banks in Nigeria were purposively selected based on the numerical strength of their customers, volume of transactions, geographical spread and accessibility to balanced secondary data especially on the internet. The research design was ex-post facto of the survey type. The secondary data were collected from the banks’ published annual financial reports. Simple percentages, Pearson correlation and multiple regression were the statistics used for data analysis while the growth of non- interest income was analysed using growth function and trend analysis. The result of the correlation showed that non-interest income and interest are significantly and positively correlated with r=0.723 with the relationship between the two being 72.3% (p=0.000 which is less than 0.05). The relationship between non-interest income and profit before tax (PBT) was found to be positive and significant at 0.05 level of significance with Adjusted R=0.583. Also r=0.769 meaning that non-interest income contributes 76.9% to profit before tax. The coefficient of non-interest income was positive. Liquidity ratio, prime lending rate and inflation rate have no significant relationship with non interest income; r=0.761, 0.349 and 0.755 respectively. The growth rate of non-interest has been inconsistent over the years, which is in line with global studies. The study concluded that non-interest income has positive and significant effect on deposit money banks’ profitability but the growth rate has been inconsistent. Based on the findings of the study, it was recommended that deposit money banks should benchmark their competitors and be ready for continuous improvement of their products and services in order to generate more non-interest income to boost profitability